In an interview, K.V. Subramaniam discussed the difference between CBDC and cryptocurrencies.
Subramaniam noted that banks will stay up with the advancement of digitization.
IMF executive director K.V Subramaniam discussed the CBDC and its significance in India.
In the interview, K.V. Subramaniam, executive director at the IMF and former chief economic adviser to the GoI, discussed the difference between CBDC and cryptocurrencies. He also mentioned that banks will stay up with the advancement of digitization.
Since the RBI launched its pilot projects for digital money, there has been considerable demand and discussion. The former chief economic adviser to the Government of India said,
“We must differentiate between cryptocurrencies and CBDC (Central Bank Digital Currency). CBDC is a digital currency issued by the central bank, as compared to the physical currency we carry in our pockets when we need to send money to someone. In some way, it will be a part of the currency in circulation, and that is simply the central bank keeping up with digitization.”
When asked if the central bank will have to readjust its money management by balancing the amount of cash to be printed and issued in the digital format, Subramanian said, "Printing of currency is based on the demand for currency. They will print depending on how they see the demand for digital money (the CBDC). They are, in some ways, identical."
Subramaniam also mentioned banks being thought of as only a means for transferring money, but he claims that it is the creator.
“The underlying issue with this is that banks create money rather than simply passing it forward,” he added.
“As per the notion of financial intermediation, you can only lend what you have. But in reality, banks can lend far more than they have. They evaluate the borrower's ability to pay back the loan. Once the loan is granted, the bank credits the deposit in the lender's account, which becomes an asset of the bank. So loans create deposits, rather than deposits generating loans,” he explained.
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